Posted by: Josh Lehner | July 20, 2018

Fun Friday: Air Conditioning

During recent heat waves I have seen social media posts on how hot a person’s home was at bedtime, or what the outside temperature is in the middle of the night. Personally, I certainly remember the last major heat wave where I didn’t have AC. We covered ourselves in wet towels to cool down and try to fall asleep. It was brutal. So, just as everyone does, I went searching for data on how many people actually have air conditioning here in Oregon. (Everyone does things like that, right?)

Well, a year ago in the New York Times, Emily Badger and Alan Blinder wrote “How Air-Conditioning Conquered America (Even the Pacific Northwest)” which highlights and details trends over time. (HT: David Beffert on Twitter). As they discuss, western states have lower levels of AC use than the rest of the country. Unfortunately we cannot get statewide or even county/regional data from Census about air conditioning. It looks like Census only asked about this in 1960, 1970, and 1980. You have to turn to third party data for those types of estimates.

That said, not all hope is lost in this data quest for information on air conditioning. The American Housing Survey asks about AC, but only really covers the biggest metropolitan areas of the country. In digging into those results, it is western metros that lead (?) the nation in their lack of air conditioning. Seattle ranks #1 among the 42 covered metros in terms of not having AC, while Portland ranks #3. However, Seattle and San Francisco truly are in another stratosphere than even Portland, LA, and Denver when it comes to the use, or lack thereof of AC. Now, given climates in these locations it makes sense that they rely on AC less than in the Midwest and South, and frankly other western metros like Las Vegas and Phoenix. However that is hardly reassuring to those who just lived through the latest heat wave.

Of course not all housing units are created equal. Whether or not your house or apartment has AC is in part a function of what type of housing unit you live in and when it was built. Unfortunately we cannot get a complete cross tabulation of this data from the AHS — the data is suppressed — but you can get an overall feel for the pattern of AC in the Portland area. Single family homes have higher AC usage, as do large apartment buildings (probably because a lot of these are newer construction). While the old Oregon specialty of quads and eight-plexes have low levels of AC use, at least in part because a lot of these were built in the 1960s and 1970s.

Update: In the comments (and via email) it was brought to my attention that the Northwest Energy Efficiency Alliance (NEEA) has great information on housing units in the NW, across Idaho, Montana, Oregon, and Washington. You can find their 2016-2017 report HERE. There is tons of great information in that report when it comes to not just air conditioning, but wall/ceiling insulation, heat source, finished/unfinished basements and so much more. As for air conditioning, among single family homes it looks like Montana is actually the lowest at 48% having AC, Washington clocks in at 52%, Oregon at 59%, and Idaho at 78%. Thanks for the heads up, and let me know if there are other great resources out there too.

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Posted by: Josh Lehner | July 19, 2018

Welcome to the Trade Skirmish

Tariff proposals and enactments continue to build in recent months. The situation has not risen all the way to a full-blown trade war, or at least not yet.  But we need to call it something. Trade fisticuffs doesn’t quite sound right, so let’s go with trade skirmish for now. This post largely builds upon previous work from our office on global supply chains and Oregon’s direct trade exposure to China.

The upshot of the trade skirmish remains that the direct exposure of goods subject to tariffs is small when measured against the size of the economy. Yes, we’re talking about nearly $60 billion worth of U.S. exports, but in a $19 trillion economy that represents 0.3 percent. And even as these exports will decline some, they will not go to zero overnight. Given the relative size of the tariffs, some forecasters are not adjusting their outlook at all, while others are revising down their growth expectations a hair, something like shaving 0.1 percentage points of growth off their 2019 GDP forecasts. As such, the real macroeconomic concerns remain focused on continued escalation across products and/or involving more countries.

The reason for the concern is that we now have integrated, global supply chains. While goods producing industries rely more upon imports than other sectors, every single industry imports something. As Moody’s Analytics writes in their trade report, “higher tariffs change the economics of the supply chain. If the tariffs remain in place long enough, they will cause the chain to shift.” They go on to note that this shift, should it occur, will be highly disruptive. Economist Paul Krugman, Nobel winner for his trade work, notes something similar as well. The big picture concerns aren’t where things stand today, but where they may head in the future should a full-blown trade war occur.

This next chart tries to show overall trade exposure for the various subsectors within manufacturing. On the horizontal axis is a measure of import exposure, while on the vertical axis we look at export exposure. The size of the bubbles represent the size of industry output.

A few subsectors stand out. First, petroleum and coal manufacturing uses a lot of imports but the U.S. exports very little of these goods. Second, transportation equipment (autos, aerospace) is a big sector with both imports and exports that are significantly above average rates. We know this industry has a true global supply chain. Third, computer and electronic products have a small share of import exposure but the highest export exposure across manufacturing. Here in Oregon we know a lot of these exports represent within firm shipments to assembly plants around the world, but I cannot speak for the other 96% of these exports. Finally, sectors like food and beverage, wood products, printing and the like have relatively small trade exposures as they rely on U.S. grown or produced inputs and sell largely to the domestic/local market.

For Oregon specifically, we are now talking about $800 million worth of goods subject to the enacted or proposed tariffs.

Within these tariff impacted exports there are two groups. The first is composed of Oregon-made products that are sold abroad. This includes wheat heading to China and wood products heading to Canada. However the second group of products represent things that aren’t necessarily made in Oregon, but for whatever reason get coded as Oregon exports. This includes the passenger vehicles and soybeans heading to China. Now, Census and WISERTrade do their best in coding exports back to where they were made, but there are limitations to their data and efforts. Additionally, while these products may not be grown or produced in Oregon, they do have a local economic impact in terms of port jobs, transportation, warehousing, logistics and the like. So a decline in these exports nationwide would have a local impact as well, just not nearly as large as if those good were made here in Oregon. Finally, it is highly likely that some Oregon-made products get counted as exports to other states as well, so the real world impacts will not be confined to what is seen above.

Bottom Line: The trade skirmish is here. Tariffs are raising the prices of some imported goods and will curtail some exports as well. To date these actions have minimal macroeconomic impact, even if specific businesses and industries see larger changes. The real concerns lie with continued escalation that would eventually disrupt the global economic supply chains. Should this come to pass, the economy would see noticeable impacts. Moody’s Analytics, in their trade war scenario, pegs the decline in GDP relative to baseline around 1.5 percentage points and more than 2 million jobs nationwide. In a full-blown worldwide trade war where international trade falls by 70 percent, Krugman finds a 2% GDP decline is plausible. That is an outright decline, not a reduction relative to the baseline. Again, the economy is far from these potential scenarios today, however there does not seem to be a clear resolution in sight either.

Addendum: A look at export exposure across all states ranked from the highest to lowest in terms of the size/value of their exports subject to tariffs.

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Posted by: Josh Lehner | July 10, 2018

Deciphering Oregon’s Tight Labor Market

We know the economy is beginning to run into capacity constraints. The biggest issue today facing Oregon firms is the ability to attract and retain workers. The labor market is getting tighter for two primary reasons: a strong economy, and demographics as retirements increase. These factors are seen across the entire economy, not in an industry or two. Overall this results in slowing statewide job growth as the economy transitions down to more sustainable rates.

That said a tighter labor market is not the same as a true labor shortage. There is plenty of evidence of the former and none of the latter. The share of prime working-age Oregonians with a job is back to where it was a decade ago, yes, but remains lower than in the late 1990s. In fact we continue to see the labor force response where previously sidelined individuals return in search of these more-plentiful, and higher-paying jobs. Additionally a true labor shortage, or a genuine lack of workers is not the same as a skills gap. While these concepts are intertwined (or even nested), the implications and policy prescriptions are different.

Supplementing data with qualitative information and reports is a great way to help flesh out the entire story. One such source is the job vacancy survey our friends over at the Oregon Employment Department do (full report, blog summary). Given Employment has conducted the survey for 5 years now, we have a treasure trove of information on hiring directly from Oregon businesses. The recent report is filled with juicy anecdotes like an Oregon grocery store that had zero applicants for more than six months. Do read the real report for more information.

To start I like to group the responses into different buckets to gauge overall trends. First, Oregon firms continue to report that a plurality of their job openings are not difficult-to-fill. It takes time to post a job, conduct interviews, and get all the paperwork filled out, so it is no surprise that many job openings reflect general labor market churn, akin to, say, frictional unemployment. Second, when it comes to the rising number of difficult-to-fill openings in Oregon, the relative pattern has remained essentially unchanged in recent years. Roughly, an equal number of these difficult-to-fill positions are due to a general lack of applicants, issues with the jobs or employers themselves, and issues with underqualified applicants. Each of these segments has different implications for the economy and policy, but so far none are really sticking out.

A general lack of applicants is likely tied to the overall tightness of the labor market, and potentially a true labor shortage should it come to pass. Job-specific or employer issues are a reflection on the jobs themselves, including low wages, unfavorable working conditions and the like. These issues are best addressed by individual firms or industries. However it is the third group, the underqualified applicants, that is the most important to watch for legitimate workforce issues, including a skills gap should it ever materialize.

In digging into the details, or individual responses, there are only a few changes from 2016 to 2017 that stand out. First, the increase in not difficult-to-fill positions. Second, the increase in difficult-to-fill positions but no reason given as to why the vacancies were difficult-to-fill. This makes it hard to interpret these results. And third there was a sizable increase in the lack of soft skills as a reason for why some positions are difficult-to-fill.

From the report:

Soft skills include professional competencies required for a job, such as communication, interpersonal, and social skills. In the Job Vacancy Survey it included employer responses related to subjective traits such as honesty, reliability, and motivation. It also included more quantifiable traits such as having a valid driver’s license and clean driving record, passing a background check, and passing a drug screen.

The report goes on to note that drug testing issues accounted for 1-2% of all vacancies from 2013 to 2016, however they increased to 4% in 2017. This is similar to what our office noted a few weeks back and in our latest forecast document. And in our forecast advisory meetings our friends at Employment did share with us some of this information during the discussion of the labor market and anecdotal reports our office has received. Again, we’re not exactly sure what to make of this development. Some of it likely is a compositional issue, but it does warrant monitoring these trends moving forward.

So what are employers expected to do? For one they must dig a bit deeper into their resume stack to find workers that may have been previously passed over. This includes searching in places where participation is down but likely to respond in a strong economy. Employers may also downskill some positions by having fewer skill and/or work experience requirements. Similarly, on-the-job training becomes considerably more important in a tight labor market. And raising wages to compete in the market. Additionally providing other benefits like consistent hours, or a flexible work arrangement, and the like can similarly attract and retain workers.

Bottom Line: To date, based on the information and responses from Oregon businesses, it does not yet appear that Oregon is facing a genuine labor shortage, nor the much-hyped-but-never-proven skills gap. This is great news. The pattern of job vacancies overall reflect a strong economy in which businesses are having a harder time filling positions, but at least not yet due to legitimate labor market problems. Oregon’s working-age population continues to grow, in large part due to migration trends. However, the tighter labor market is expected to remain until the next recession. It does makes it a bit more challenging for firms to grow and expand, but it is also good news for workers as strong wage growth is expected to continue as well.

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Posted by: Josh Lehner | June 27, 2018

Oregon’s Food Economy

When our office discusses Oregon’s world class strengths, we tend to focus primarily on things like timber, semiconductors, and migration, with only passing reference to the others, like UAVs and food and beverage. This is in part due to the fact we have spent less time researching these topics; alcohol being an exception. And also in part because it is difficult to properly frame the conversation given that residents in every state eat and drink. However our office is asked periodically about the state’s food and beverage sector and also the tie-in with tourism. Consider this post a first effort to help quantify the discussion and highlight how Oregon differs from other states. Our office is indebted to Portland State researchers who produced a tremendous report for the City of Portland a few years ago. It breaks down the food economy into segments representing different portions of the supply chain. The report goes from farm to table, but with economic data. What follows below borrows heavily from the Portland State report.

Oregon’s food economy overall employs nearly 290,000 workers, or 15% of the state workforce. It accounts for 4-5% of state GDP in recent years. One-third of these workers — nearly 100,000 — are in the production, processing, and distribution segments of the food economy. It is here where Oregon has a distinct comparative advantage, and a growing national share of the market. However, most of us only really interact with the fourth segment of the food economy: food services. The lion’s share of jobs are found in these food services, which includes restaurants, supermarkets, specialty food and beverage stores, food carts and the like. And while these services garner the (inter)national attention, and satisfy our tastebuds, they play a lesser role in terms of the economic impact and what makes Oregon unique from an industrial structure perspective. This is partially because food services are largely driven by population and consumer spending patterns. Even as Oregon may be home to award-winning chefs and renown restaurants, residents of other states also go out to eat. Standard economic data is insufficient to distinguish between the quality of products or services sold.

Where Oregon’s food economy differs from other states is on the production and processing portions of the food economy. The more famous food services are an integral segment, a byproduct and growth off of the fact Oregon is home to successful producers and processors of the local food economy. Specifically, Oregon’s location quotient for food production is 2.6, meaning the concentration of agricultural jobs is two and a half times what it is nationwide. This is primarily driven by crops (grains, fruits, vegetables, etc) and fishing. Additionally, Oregon’s location quotient for food processing is 1.5 meaning the local concentration 50% larger than in the average state.

As seen in the chart above, the growth in food processing really stands out both here in Oregon, and when we look across the country. These processing jobs (food manufacturing plus beverage manufacturing) are being driven not just by overall economic growth, but also a regional shift, or regional competitive effect. Using a shift-share analysis, the overall growth in food processing jobs in Oregon is 70% regional competitive effect. Contrast these processing gains with those seen in food production and food services which are 99% and 97%, respectively, driven by the national growth and the industry mix components of the shift-share analysis. In other words, the growth seen in much of the food economy can be tied to general economic and industry trends. However, Oregon’s food processing growth is predominantly due to Oregon gaining a significantly larger slice of the pie.

To help frame these gains I looked at changes across all states over the past decade. The next few charts focus just on food manufacturing (NAICS 311) and leaves beverages to the side for a moment. Here you can see Oregon is among the top performers for job growth both in the absolute number of jobs gained, and in percentage terms.

What is most surprising to me, however, is how broad-based these gains have been across the various subsectors here in Oregon and across the state from a geographic perspective. Anecdotally, our office has heard reports about the growth of the frozen food companies here in the Willamette Valley as they import more products during the offseason to keep production high and employees working, in addition to some of the bread and bakery growth in the Portland region. However in digging a little bit deeper, it is clear that those ancedotal reports in recent years are just a portion of the overall growth.

Nearly every single subsector of food manufacturing has added jobs in the past decade. Yes, dairy manufacturers are flat over the 10 years but this includes many years of growth followed by a large drop in 2015, only to resume growth again in 2016 and 2017. I am unsure of what is happening there. Additionally it should be pointed out that a small portion of these gains, a few hundred at most, are due to the growth of the recreational marijuana industry. Companies making edibles are classified into food manufacturing, mostly into the bakeries and confectionery product subsectors. However the marijuana gains are very small compared with the overall growth seen in the past decade.

Additionally, the food manufacturing job gains are widespread across the state. The largest concentration of firms and employment is in the Portland region, however the strongest gains in percentage terms are seen in the Rogue Valley, Central Oregon, and the Columbia Gorge.

Given the strong growth in the past 15 years, and expectations that the food economy will continue to outpace the overall economy moving forward, what types of jobs are we talking about? In the NERC report, they highlight both wages and skills needed (educational attainment) for most of these jobs from an industry and occupational perspective. On net, food economy jobs pay relatively low wages. In the job polarization research, the food production and food service jobs are considered low-wage occupations, while the food processing and food distribution jobs are considered middle-wage (or lower middle-wage). That said, the largest occupations included in the food economy do not require formal education beyond high school, with the exception of truck drivers for the distribution. Among all Oregon jobs that do not require a college degree, food economy jobs — particularly food processing and distribution — pay similar to others in this broad group.

Finally, the market for Oregon-grown and Oregon-made products is much larger outside the state than inside the state. As such, Oregon firms are finding success in exporting their products across the country and around the world. For smaller producers and manufacturers, finding a niche market is one way to help weather both commodity price swings and competition from larger firms. In the past decade, Oregon’s food producers and processors export $2-3 billion in value of products internationally.

Bottom Line: Oregon’s food economy is helping drive overall growth in the state. Above average gains are expected in the coming years as well. The largest segment of the food economy are the services, which garner much of the deserved acclaim. However it is the food production and food processing where Oregon stands apart from most states. The growth in local food processing means Oregon is getting a larger slice of the value-added manufacturing segment of the food economy. These gains are broad-based across subsectors and regions of the state.

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Posted by: Josh Lehner | June 22, 2018

Fun Friday: Guard the Northern Flank

Previously our office found that the Portland region continues to experience net in-migration among lower-income households. However that does not mean households are not responding to the changing housing market and moving around — either by choice or by (financial) force. As such, our office continues to be on the lookout for spillover impacts of the housing crunch. For one, we know that many displaced households in the Portland area are moving into East Multnomah County. However, if you are willing to paint with broad strokes from a tiny sample size*, we are also seeing long-time migration patterns between Portland and Salem shift as well. This is the first real sign of housing spillovers seen in the data outside the Portland region itself.

*I do mean tiny sample size. We’re talking around 20 individual household responses moving in each direction when it comes to analyzing the ACS microdata here. Some may say this is a data crime and I largely agree. However the data patterns make intuitive sense, and it is Fun Friday. Do take these results with a grain of salt.

Our office’s talking point has been that Oregon used to send it’s natural resources from the rural ares, up the Willamette into Portland and then out into the world. Today those natural resource flows have largely been replaced with human resources (people). Many, young working-age Oregonians do move into the state’s urban areas. And from there many do end up in the Portland region. This includes net migration from the rest of the Willamette Valley into the Portland area. However, that pattern appears to have shifted. For the first time I can remember we are now seeing net migration out of the Portland area and into Salem (Marion County). It is not just the total number of people or households moving either. The migrants into Salem have higher incomes, much higher homeownership rates, and they are buying homes that are about 25% more expensive than what local Salem residents are buying in recent years. But those higher prices are still less than most houses in the Portland area sell for. As such, some of these shifts appear to be housing-related spillover.

Commuting patterns are another way to help gauge the spillover. While we cannot easily answer the Salem to Portland commute question, or at least not with a good enough time series to gauge trends, we do have some information. Examining commuting out of Salem to any and all metro areas — Portland yes, but also Albany, Corvallis, Eugene plus small numbers to other areas — shows that the absolute number reached a record high in 2016. However, when measured as a share of the workforce, these commuters are back to where they were prior to the Great Recession. This data is at least suggestive of spillover effects as well, or at a minimum a more integrated labor market throughout the Willamette Valley.

All told, these patterns may be at least in part driven by affordability problems in the Portland region. But they are also at least in part driven by the benefits and amenities of the Salem area. The Salem economy is booming, experiencing the best economic expansion the region has seen in at least 25 years. The job growth is strong and broad-based across industries. Household incomes are outpacing other Willamette Valley metros. Salem’s downtown is noticeably more vibrant than at any point in the past decade based on foot traffic and building remodeling activity. The region also boasts great demographics.

However, in conversation with Salem residents, realtors, and the like — you’re not going to believe this** — the concern is the relatively new Portland migrants are worsening affordability and changing the character and culture as well. Now, the Salem area is building hardly any new housing units (see slide 17.) The lack of new supply is a major problem, even more so than the return to average levels of demand.  That said, these issues are pretty much universal across the state, and no matter where I go, these housing conversations are always the same, it’s just the name or location of the new residents that changes.

** You will totally believe it.

Note: All of the above uses American Community Survey data through 2016. 2017 data is coming out this fall and our office will update some of this work when available.

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Posted by: Josh Lehner | June 20, 2018

Construction Wages (Graph of the Week)

Even as housing affordability is set to improve in the coming years, it certainly remains worse today than 5 or 10 years. It continues to be a strain on many household budgets in the region. The key question is why haven’t we seen the supply response one would expect given the high prices and low vacancies? A little over a year ago our office dug into some of the commonly cited reasons for the lack of supply. That post continues to be a great reference and something we regularly direct inquiries to along these lines. As such I recently updated a few of those charts to account for new data and also posted them to Twitter.

One of those commonly cited supply constraints is the lack of workers. Something along the lines that the economy could build more housing units if firms could find the workers. Our office’s position is that yes, it is harder to find workers today than in the recent past, however from a high vantage point it does not appear to be particularly bad in construction relative to the overall economy. For example, the share of prime working-age Oregonians with a job is back to where it was prior to the Great Recession, if not a little above that. It’s harder for all businesses to find and attract workers in a relatively tight labor market. As an aside, that is one reason why we’ve also dug into some potential labor supply sources.

The point being that if there were a true labor shortage you would expect to see it show up in the wage data. In this case, wages paid to construction workers would be rising significantly faster than wages in other industries. And that is just not the case. Wages are rising across the board in Oregon, and faster than in the typical state. However construction wages are largely increasing at the same rate. An interesting question that arose on Twitter was whether or not we could break down the construction wages into different segments, say residential vs nonresidental workers and the like. Scott Littlehale from the Northern California Carpenters Regional Council does lots of good and informative work on construction costs and wages online. He was kind enough to pass along how he separates the construction data into residential workers and nonresidential.

So without further ado, this edition of the Graph of the Week shows relative wage trends for the different segments of the construction labor market here in Oregon. There has been an increase in residential worker wages, but that increase just makes up for the lost ground in the aftermath of the housing bubble. Given the available data, it does not appear to our office, again from this high level look, that the labor issues in the construction industry are dissimilar to those experienced in all other industries. Wages are rising as the labor market tightens, but wages paid to construction workers are not rising particularly fast. To the extent that labor costs for projects are rising, then they are more likely flowing into firm profits and not worker paychecks (see that previous post for a bit more on this).

Finally, it is quite clear that the skilled tradespeople earn the high wages. The construction wage premium is not about residential workers but about the nonresidential work. For more see our previous work on Labor and the Trades, but also a broader look at Occupations, Wages, and Educational Attainment.

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Posted by: Josh Lehner | June 14, 2018

Data Visualization, A Few Notes

Periodically I get questions about data visualization and good sources to learn more or improve. There are myriad options out there including countless books and websites. However, in an effort to pare down any recommendations, I do have a few suggestions. Consider this a significantly incomplete reference, but also a good place to start. Specifically, there are 3 books on data visualization I cannot recommend enough, ordered in my particular preference among them even if you cannot go wrong with any.

  • “Storytelling with Data” by Cole Knaflic
  • “The Wall Street Journal Guide to Information Graphics” by Dona Wong
  • “Good Charts” by Scott Berinato

The key is taking the great advice given in the books and figuring out how to apply it using the specific software you use. Here there are a number of good sites that tailor their work to different software packages, with Excel being the most common. One of my favorites is Policy Viz which walks you through how to set up the spreadsheet and get Excel to do what it takes to create interesting visuals. Policy Viz also has lots of links and resources for analysis, visualizations and presentations. Another good source is the Storytelling with Data blog. Additionally there are also plenty of good YouTube channels like MrExcel and Excel Campus to name just two.

Now, for a few examples of things I’ve been playing around with. First up is the box-and-whisker-and-scatterplot chart I first saw on Twitter last month. Policy Viz has the details on how to create it. I recently used the horizontal version of this in the high-tech post comparing software jobs across large metro areas. Here is a look at state level prime-age EPOP. Just for fun. It’s detailed and complex but you get both the general and specific distribution of the data. I like it quite a bit, but probably not necessarily for a general audience.

One of the biggest challenges in data visualization overall is getting rid of pie charts. Especially those hideous 3D pie charts. I’m not here to run down all the reasons pie charts fail. I’ll send you to Ms Knaflic’s great “Death of Pie Charts” piece for starters there. But I am here to help tackle the big issue of visualizing budgets. When it comes to revenues and expenditures by type or category, we have a really hard time getting away from pie charts. So today I’ll present 2 possibilities for those interested: stacked column charts and treemaps.

For starters I’m going to use the 2017-19 Legislatively Adopted Budget as an example. This is by no means meant to pick on our friends in LFO or in BAM. Our office has plenty of our own data visualizations that need help. The key is to try and improve the form and function of your visualizations so they get better over time. And please, whatever you do, don’t look at the first chapter of the most recent Governor’s Recommended Budget because it’s full of terrible charts from our office, and I do mean terrible.

One of the main issues with pie charts is that having too many slices makes it hard to read — usually more than 5 slices. The spacing gets off and readers are unable to properly compare the size of the slices. This matters because pie charts are for showing hierarchical data, meaning which things are bigger or smaller than the others. And please note if you plan to stick with pie charts, do order the data and shade the colors correctly. That alone is a huge step up from the default chart settings. 

That said, one possibility for replacing those budget pie charts could be a stacked column graph. Here I’ve hidden the actual x and y axis to allow for better labeling (I think). The labeling is still scrunched for the expenditures. I tried adding leader lines for the labels but it looked too cluttered. But overall you can see where this is going.

Another possibility that works well with hierarchical data is a treemap. In the newest version of Excel they include this as an option. In older versions you have to make it yourself by adjusting the size of rows/columns and then shading them in appropriately like I have done below — this is all done by hand. An issue here is it can also be difficult to properly distinguish which segment is larger than the other.

Personally, I am rarely every satisfied with a chart. I am always looking for ways to improve them. The biggest item is to continue to play around with your data and try out different visualizations. You can make many different charts from the same data. Each may highlight a particular aspect of the data. It is important to know all of these aspects to understand the story the data is telling. However it is also up to you, the researcher, to choose the one chart that tells the audience your main point, or maybe the most interesting finding you have. And at the same time it is your job to choose the chart that properly conveys the message.

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Posted by: Josh Lehner | June 7, 2018

Oregon High-Tech Outlook

This post circles back on the recent Headwinds and Tailwinds presentation I gave at the Northwest Economic Research Center’s forecast breakfast last month. It also ties directly into the previous post on Oregon’s industrial structure overall.

The biggest high-tech takeaway from an industrial structure point of view is that Oregon’s historical strengths are not expected to lead growth moving forward. Oregon’s high-tech legacy and our regional economy’s comparative advantage lies in hardware manufacturing, with semiconductors being the most prominent. This portion of the high-tech industry will continue to generate considerable economic output, both directly and indirectly given large-scale operations with supply chains, and the clustering of a skilled workforce. However, job gains over the next decade are unlikely to follow suit due to ongoing productivity increases. To the extent that a few of these firms do add jobs, there are others scaling back. As such, Oregon’s high-tech growth will be driven by the software side of the industry.

Over the past decade or so, employment at software firms has increased considerably. We’re talking 4.5-5.0% annualized job growth over the past 10 to 15 years. This is by far the fastest growing industry in the state during this time. The second fastest growing industry is health care at just under 3% annual growth. That said, employment at software companies remains a relatively small slice of the economy. It has gone from around 1% of all statewide jobs and 17,000 workers back in 2006 to nearly 1.5% of all statewide jobs and over 27,000 workers in 2017.

However, as our office previously discussed this software growth is a bit different than on the hardware side. First, software has not been Oregon’s comparative advantage like hardware over the decades. Just look at location quotients for semiconductors (6.3) and software (0.9). That means Oregon’s concentration in semiconductors is 6 times as large as the U.S. average, while our concentration in software is actually 10 percent smaller than the U.S. average.

Second, we’re seeing a number of outposts or satellite offices rather than headquarter operations and research hubs. Today this is not a problem. In fact the growth in these new, high-wage software jobs is all good news. In particular they are diversifying our economy and adding a component that hasn’t really existed like this previously. However, one concern may be that these outposts are more vulnerable during the next cycle when the spokes are cut and operations are consolidated at the hub. This may not happen, but it has certainly been the case in hardware in recent decades. Oregon, being the main research hub, has benefited tremendously as a result.

All of that said, at times we can lose the forest for the trees. The above looks at employment through an industry lens, or based on what the company actual does or produces. One thing our advisors have been, umm, advising us to do in recent meetings is to dig not just into tech industries but tech occupations. This is something we previously did a few years back and I have updated that work using ACS data instead of OES.

There is at least one key reason why tech-related occupations are preferable to industries and that is the fact that tech-related jobs are everywhere, and in nearly every firm. It may just be one network administrator or it may be a whole team of engineers, but tech-related occupations are spread across the entire economy today. So measuring just tech jobs at software companies misses the broader impact. And it also gives short shrift to one of Oregon’s key comparative advantages: the ability to attract and retain talent. Oregon’s high quality of life and strong regional economy helps local employers recruit top talent. This goes specifically for high-tech companies but also for hospitals, apparel and design firms, heavy manufacturers, the public sector and so on down the list.

In looking at tech-related occupations, Oregon and the Portland region do tend measure higher than examining industry-only figures. Specifically, the Portland metro area ranks 11th highest among the 50 largest nationwide in 2016. Now, while Portland ranks just ahead of Atlanta, Columbus, and Dallas, it does rank a bit lower than many of the nation’s leading tech hubs. Also note that while these tech-related jobs are growing as a share of all jobs over the past decade, Portland’s relative ranking has remained essentially the same. Software jobs are increasing everywhere, not just along the West Coast or in tech hubs. And while Oregon and the Portland area are seeing strong gains, they’re not significantly stronger than the growth seen nationwide or in other large metro areas.

In digging into these jobs a bit further, here are a few worker characteristics that stood out to me. These tech-related occupations in the Portland region are 74% male, 26% female, compared with all other occupations being 52% male, and 48% female. Tech employment is 77% non-Hispanic white, matching the other occupations (76%). Tech’s educational attainment is nearly double that for other occupations. The share of tech workers with at least a bachelor’s degree is 69% compared to 38% for all other occupations.

Bottom Line: High-tech jobs in Oregon are expected to increase, even as the sector transforms. Hardware remains a key economic strength, although employment is not increasing on net. The software growth diversifies our regional economy. However the impact of tech-related occupations is broader than software firms alone. Given the prevalence of outposts, some of this software growth is an economic tailwind with risk. The key to the long-term outlook is for Oregon to develop a critical mass of software and tech-related workers, so that the talent remains to rebuild the sector following the next downturn of tech cycle. To this point, every single one of our advisors believes we have reached critical mass. Our office largely agrees and the numbers support it. However, given the relative newness to the software industry in Oregon, we would also like to see how these trends behave over an entire business cycle to know for sure. But we do know that Oregon’s ability to attract and retain skilled workers is a comparative advantage moving forward.

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Posted by: Josh Lehner | May 31, 2018

Oregon’s Industrial Structure and Outlook

This post circles back on the recent Headwinds and Tailwinds presentation I gave at the Northwest Economic Research Center’s forecast breakfast a couple weeks ago. It also provides an update on previous work along these lines, and this topic is always included in the Extended Outlook portion of our forecast document.

Oregon’s industrial structure is very similar to the U.S. overall, even moreso than nearly all other states. That said, Oregon’s manufacturing industry is larger and weighted toward semiconductors and wood products, relative to the nation which is much more concentrated in transportation equipment (autos and aerospace). However, these industries which have been Oregon’s strength in both the recent past and historically, are now expected to grow the slowest moving forward. Productivity and output from the state’s technology producers is expected to continue growing quickly, however employment is not likely to follow suit. Similarly, the timber industry remains under pressure from both market-based conditions and federal regulations. Barring major changes to either, the slow growth to downward trajectory of the industry in Oregon is likely to continue.

Note: This chart compares expected job growth among Oregon’s traded sector industries based on their relative concentration in Oregon, or location quotient. The larger the location quotient the larger the industry concentration in Oregon compared to the U.S. overall. For example, industries in the top quintile (the red bar) are at least 2.7 times larger in Oregon than in the average state. Conversely, industries in the bottom quintile are at least 25% smaller in Oregon than in the average state. Also note that this chart focuses just on the traded sector whereas the chart from the presentation (link above) included all sectors. However, the overall story remains the same.

With that being said, certainly not all hope is lost. Those top industries in Oregon comprise approximately 25 percent of the state’s traded sector employment, and 7 percent of all statewide employment. Many industries in which Oregon has a larger concentration then the typical state are expected to perform quite well over the coming decade. These industries include management of companies, food and beverage manufacturing, published software along with some health care related subsectors.

The state’s real challenges and opportunities will come in industries in which Oregon does not have a relatively large concentration. These industries, like consulting, computer system design, financial investment, and scientific R&D, are expected to grow quickly in the decade ahead. To the extent that Oregon is behind the curve, then the state may not fully realize these gains if they rely more on clusters and concentrations of similar firms that may already exist elsewhere in the country.

All told, it is somewhat of a mixed bag in terms of Oregon’s industrial structure and expected growth. Many industries in which Oregon has a relatively smaller concentration, will grow quickly in the future. Some of Oregon’s largest industries will grow less quickly. With that being said, there is lots of good news for the state’s economy, and the good news outweighs near-term concerns. However, keeping these facts and trends in mind is important when thinking about the outlook and how it differs, or remains the same, from our history.

I will pull out at least a couple more of the Headwinds and Tailwinds slides in the coming weeks.

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Posted by: Josh Lehner | May 25, 2018

Kickers in Comparison (Not So Fun Friday)

In our office’s latest economic and revenue forecast, we now project that revenues this biennium will come in above the 2% kicker threshold for both personal and corporate taxes. This outcome is still far from a done deal as we have more than a year to go in the two year budget cycle, and more importantly we still have a whole tax filing season to come. The jury remains out.

That said, I thought it may be helpful to put the projected kicker in perspective. A common question we have been asked, both last biennium and again this week, is something like “That’s a really big number. Has Oregon ever paid out a kicker of that size?” The short answer is yes, we have. The long answer is yes, we have and given the economy is much bigger today than in decades past, the recent kickers are actually quite small. It really comes down to knowing both the levels (absolute $s) and rates (forecast error, or % of tax liability).

During the forecast presentation Mark made a comment along these lines in the context surrounding the fact that Oregon is losing Representative Barnhart to retirement this year. Rep. Barnhart has chaired the House Committee on Revenue since 2007, and we are thankful for his service. He is also the last man standing on the revenue committees who can tell people that a $500 million kicker really isn’t that big. The largest personal kicker paid out was just over $1 billion a decade ago. And yes, the kickers in recent biennia and the current projected kicker are larger in absolute terms than those paid out in the 1980s and 1990s, but Oregon is a much bigger economy today than back then.

This second chart tries to show this point. Instead of looking at the kicker size in dollar amounts, it looks at their size in comparison to tax liability. If the current forecast holds, it would be the 8th largest kicker in our office’s history, out of 12 total. The kickers generated during the 2013-15 and 2015-17 biennia rank as the 10th and 11th largest kickers.

Another question we get is if the forecast is off by 2 or 3 percent, why is the kicker credit closer to 6 percent? The reason is the forecast error is over 2 years and includes all General Fund revenues excluding corporate, but then paid out on just one year’s worth of personal income tax liability.

So what does this mean for you, as a taxpayer? It’s still a bit fuzzy at this point given the projected kicker, should it come to pass, will be a credit on your 2019 taxes filed in early 2020 based on your tax liability from 2018 (this year). As such, any calculation is based on multiple forecasts. That said, roughly speaking we’re looking at the kicker credit being about 6%, which translates into the average kicker being around $270, with the median about $125. We will have a better handle of these estimates and at various points in the distribution as we move forward and as our forecasts evolve with economic performance, actual tax collections, and future expectations.

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